THE GISTHeineken-owned Lagunitas will release a non-alcoholic sparkling water called “Hop Water” this month. Reportedly inspired by its flagship IPA, the non-alcoholic beverage is flavored using Citra, Equinox, and Centennial hop varietals, plus a “pinch of brewer’s yeast.” The latter is introduced with the intention of triggering biotransformation within the hop flavor compounds—a technique also used by brewers making modern, hazy IPAs in order to achieve specific flavors.

“Yeast biotransforms the existing hop terpenes into more desirable terpenes,” Lagunitas Brewmaster Jeremy Marshall says in a statement on the brewery’s website. “You need yeast to liberate the hop flavors, and that’s the most important thing that we know from making IPAs, and we leveraged it in making Hop Water.”

Similar products have been sold in the U.S. for some time, with brands like H2OPS and Hopwater filling a space in this niche market. As of publication, it was unclear if the similarities in name of the latter would be an issue for Lagunitas. The beer brand has taken similar issue previously, filing a lawsuit against Sierra Nevada over the use of the term “IPA.” Ultimately, that case was dropped by Lagunitas founder Tony Magee after a backlash from fans of both brands.

WHY IT MATTERSThe launch of this new product targets a lucrative flavored seltzer market that continues to grow. Almost 574 million gallons of non-alcoholic sparkling water worth about $6.1 billion was sold in the U.S. in 2016, which increased to 790 million gallons and $8.5 billion last year. Lagunitas makes this foray into the space after the release of its THC-infused sparkling water product called Hi-Fi Hops this past June.

Lagunitas’ company ethos has long been wrapped up in the haze of cannabis culture, and with the drug becoming legalized for adult use in California in late 2016, the brewery's begun to seize its share of the emerging marijuana market with aplomb. And, as GBH explored in a recent article on the same subject, craft beer—including notable brands such as Lagunitas—has long had associations with weed culture.

This new product demonstrates Lagunitas’ willingness to explore other markets outside of beer as it continues to expand its empire. Its decision to sell an initial 50% stake to Dutch brewing giant Heineken in September 2015 for a reported $500 million, before eventually selling the remaining 50% stake in May 2017, made clear its ambitions to grow on a global scale. It just wasn’t clear at the time that would include non-beer options. As a category in the U.S., non-alcoholic beer lost about 7% of sales volume between 2013 and 2017 in IRI-tracked grocery, convenience, and other stores, selling about 4.5 million case equivalents last year, oddly almost the same as what Lagunitas’ portfolio sold in those same stores. But as pointed by GBH in March, there is opportunity for no- or low-alcohol beer in the U.S. and UK.

Moving into alternative markets is not uncommon for a large beer brand. Boston Beer Company has invested heavily in cider, hard seltzer, and flavored malt beverages (FMBs) with its Angry Orchard, Truly Spiked & Sparkling, and Twisted Tea brands, respectively. According to estimates by the Brewers Association, just 53% of Boston Beer’s brand portfolio comprises of its flagship beer brand, Samuel Adams. If the growth of its alternative market products was to push that below 50%, it could lose its status as a BA-defined craft brewer. Of course, that's a conundrum that the Heineken-owned Lagunitas wouldn’t have to scratch its head over if faced with a similar alternative-market boom.

The launch of Hop Water also comes after the news that the ABV of the brewery's flagship IPA will be reduced for keg product exported to the UK market. The rebranded Lagunitas Draught IPA launched in the UK in July 2018 and sees the beer’s ABV reduced from 6.2% to 5.5%. Unlike in the U.S., low- and no-alcohol products are seeing a boom in the UK with analytics firm Kantar Worldpanel reporting that year-over-year sales of non-alcoholic beers are up 58%. Despite this, there are “no plans for [Hop Water] to be available in the UK anytime soon,” according to Lagunitas’ International Marketing Manager Michael Dean.